Sanctions could collapse Russian economy

Nobody could have predicted that the Western response to the Russian invasion of Ukraine would be so coordinated and so immediate. In fact, the West - the United States and its allies in the European Union, Japan, Australia etc – are more united now than at any time in the recent past.

Two wars are ongoing on two fronts. The first battleground is the physical one, where Russia is pounding Ukraine with tanks and missiles.

The other battleground is in the economic warfare where Russia is juxtaposed against the West. This is, in reality, an uncharted economic territory where worldwide freeze-out of such kinds has never happened before, at least not in the recent past, even when Crimea was annexed in 2014. 

"Russia's economy is experiencing serious blows," the Kremlin spokesman Dmitry Peskov acknowledged on 2 March over a call with foreign reporters, reported CNN. 

Despite its geopolitical differences with the West, Russia is integrated in the world economy. Only 12 countries in the world export more than Russia. Russia exports oil, gas, coal and wheat to much of Europe. 

So far, the restrictions have amounted to a siege of a country dependent on global trade.

This is new ground for economic policy. No country has ever had to deal with this kind of global freeze-out before. The long lines at ATM machines all across Russia are a sign of what will happen.

However, the Kremlin spokesman Dmitry Peskov also said that there are some plans underway to protect the economy. Russia has been planning to counter harsh economic sanctions for the last eight years, ever since the Crimean annexation. 

Nonetheless, Putin has certainly miscalculated how swift and synchronised the Western response would be.

Economists predict a 5% decline in the Russian economy. People are rushing to withdraw money from banks. The Russian ruble crashed to a new low after sanctions imposed by the West in reaction to the invasion of Ukraine. 

On Monday, the London stock listings of several Russian banks fell by more than 50%. The ruble is trading like a fake cryptocurrency, and it fell more than 30% after the invasion of Ukraine began on 24 February.

As the ruble weakens, the price of some imports will experience a definite upsurge. Jobless people in Russia are going to suffer the full brunt of the sanctions unless the central bank intervenes and prints money to keep businesses afloat. But this will almost certainly lead to even more high prices.

Russia's central bank doubled its key interest rate to 20%, which is higher than the US federal funds rate has ever been. This was done to stop the worst inflationary effects.

Moreover, rapid sanctions will close international credit-card accounts is one of the bigger concerns for businesses.   

If Russia's economy gets worse, it could make more people leave. More young Russians are reportedly trying to leave the country. In the long run, Russia's prosperity can potentially bear the brunt too because people with money and desire for a better life who eventually leave move to the West.

Because the EU has closed its airspace to Russian planes and private planes, migrants will have a hard time getting where they want to go. From trade to travel, Russia continues to be further cut off from much of the rest of the world.

As the war breaks Ukraine and cripples Russia, it will have a huge impact on the rest of the world too, with wheat shortages, food prices and rising oil prices. But as long as the West stays unified, Russia will most likely be on the losing side.